Private grain handling companies have the resources and the infrastructure to help Western Canada’s grain industry make a smooth transition from single desk marketing to an open market environment, says the president of Cargill.
But the industry needs clear and definitive signals from government on when the transition from single desk to private sector marketing will take place and how key logistical issues such as rail car distribution will be handled if the Canadian Wheat Board ceases to exist.
Cargill president Len Penner said the Canadian grain handling industry has all the necessary tools to assist in a seamless transition. But he cautioned that timing will be critical.
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The federal government has stated that it intends to introduce legislation this fall aimed at ending the wheat board’s marketing monopoly for wheat and barley as of Aug. 1, 2012.
But until that legislation is passed, private companies will not be able to offer farmers new marketing opportunities.
“We as an industry, both farmers and grain handlers, need a lot of clarity and certainty on the timing,” said Penner.
“We’ve heard Aug. 1, 2012, but that’s not certain yet,” he said.
“If the farmer isn’t going to have that pooling option through the Canadian Wheat Board, at least not in the monopoly position come Aug. 1 (2012), then who is going to bid for his grain?
“You can’t bid for that grain ahead of time unless you know with certainty that that date is going to happen … and the key on that is to pass the necessary legislation.”
Penner said abundant lead time will be required to ensure that new marketing options can be presented to farmers within a reasonable time frame.
Grain companies will also need adequate time to make internal adjustments and reposition their resources to ensure grain can be marketed and moved efficiently.
“If we have six months of certainty, a lot of things can be put in place,” Penner said.
“I wouldn’t be surprised that as soon as there’s certainty (legislation), farmers are going to see pricing options.”
He said the transition from single desk to open market will require significant planning, not only in marketing and logistics but also on questions such as the future role of the wheat board and the management of the advance payment program for wheat and barley that the board now administers.
“This is going to be a pretty significant change for the industry generally,” Penner said.
“We’ve operated for … 75 plus years in a certain fashion with wheat and now all of us are going to be asked to step up to the plate and act differently. But I don’t see it as being a huge issue or problem.”
Penner compared open marketing of wheat to the existing marketing structure for canola, in which canola growers have access to a wide variety of marketing programs.
“Will wheat marketing look similar to what we see in canola? … I would say, generally, yes.”
Penner said Cargill is likely to offer a “full shelf ” of wheat marketing options, including deferred delivery contracts, grain pricing orders, basis contracts, floor price contracts and market average contracts.
Selling wheat in the global marketplace will not be a unique challenge, he added.
“When you look at the global wheat trade … we (Cargill) have been participating in that for probably just shy of 100 years,” he said.
“Canada, and in the past, Australia with the (state-run) wheat boards in place, would have been the anomalies.”
Penner said he doesn’t anticipate a drop in wheat acres during the transition.
He said an open market should provide farmers with stronger market signals and more clarity on global wheat values.
Lynn Jacobson, president of the Alberta Soft Wheat Producers Commission, said one of his group’s main concerns is that the demise of the board’s monopoly will result in limited marketing opportunities for soft wheat producers.
“To keep our industry alive in Alberta, we’ve had to do some innov at i v e things on marketing and searching out different markets and the board has been very helpful on that end of it,” Jacobson said.
“I can tell you right now that our industry probably would not have survived without the wheat board and the help that they have given.”
Jacobson argued that private companies are less inclined to invest money in market development because the risks are too great.
“The grain companies don’t spend money on market development … and the reason why they don’t do it is that (after) they develop a market, somebody else can step in and undersell them by $2 a tonne or $3 a tonne,” he said.
“Unless they can have exclusive control of our (production) … they’re probably not going to do it.”
He said the size of some of the smaller crops can also be a problem.
“The grain trade is based on volume. And unless the grain companies can move grain through in quantities that interest them, they’re really not going to do much for us. The export market for minor class wheats is pretty hard to access.”
Penner said concerns over market development and marketing niche grains may be legitimate, but he estimated that private industry — either large multinational grain handling companies or small niche buyers — will embrace any marketing opportunities as long as they are commercially viable.
“If there’s an opportunity that creates a win for the farmer and a win for (the grain handler) and a win for the end-use customer, then we’re going to try to close that loop,” Penner said.
“How small is too small? I don’t know … but there will be lots of people looking for ways of coming to the farmer with different opportunities.”
Penner said that the future role of the wheat board in an open market environment is an issue that needs to be addressed quickly.
He said the retention of a voluntary pooling option would be beneficial to farmers and suggested the industry should be assessing steps that need to be taken if the CWB is to be retained in a post-monopoly environment.
Time lines are tight for all stakeholders but they might be tightest for the CWB, particularly if the board’s function is altered dramatically, he said.
“From a farmer perspective, it never hurts to have more competition, so the more people that you have that (want) to buy your grain, the better off you’re going to be.”
